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  • In April 20xx, Rubink Ltd was asked to tender a contract to supply 1000 units of product X, a product they had sold for £145/unit. However, that was over two years ago. Since then, they have not made product X. To do so, would require the following resources:·1000kg of material A·3000kg of material B·2000 hours of unskilled labour·2000 hours of skilled labour·Use of a particular machinery·Appropriate supervision On investigation, the following was noted.
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  • 1.1,000kg of material A was purchased over two years ago for £2,500. It would now cost £5,000 but is no longer used by Rubink Ltd. Indeed, two months ago, they were told it would cost £500 to dispose of because of its toxicity.
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  • 2. 1,000 kg of material B is in stock, and was purchased a week ago for £6,000. It is used regularly for other products, and the purchase price does fluctuate. The expected variation is +/-10% from the average price of £6/kg.
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  • 3. The unskilled labour could be provided without further recruitment but this would involve 2,000 hours of overtime, at ‘time and a half. Alternatively, temporary staff could be employed at the same rate of £5/hour, but due to inexperience, they would be half as productive.
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  • 4. There is a problem of a shortage of skilled labour. Two new staff would be needed, at a cost of £30,000/annum. They would have to be hired on a one-year contract, but would only be needed on the product X project for six months.
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  • 5. The first machine needed for project X cost £100,000 and its WDV is £15,000. It could be sold next week for £20,000. If it is kept for another six months, its WDV will £10,000, and it will probably be sold for could be sold for £8,000.
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  • 6. The second machine is already used in the factory. If this one is used, a replacement would need to be hired for six months at a cost of £13,000. Alternatively, they could hire a machine specifically for project X at a cost of £15,000.
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  • 7. The ten supervisors already in the factory will spend approximately 15% of their time supervising this project. Their annual salary is £25,000.
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  • 8. The overhead cost for the space used by project X in the factory is £52,250.
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  • 9. The tender process has so far cost £5,500 (marketing and legal costs). The Managing Director (MD) of Rubink Ltd would like to win the contract, but also wants to earn a margin of cost-plus forty per cent on products. Other suppliers are offering product X for prices in the range of £145 to £160.
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  • REQUIRED: (a). Evaluate the possible costs of project X, explaining all the relevant assumptions you make. 17 marks 
  • (b). Describe some of the factors which need to be taken into account by Rubink Ltd before deciding on accepting or rejecting the contract. 
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Answer rating: 100% (QA)

a Eval uate the possible costs of project X explaining all the relevant assumptions you make 17 marks ANS WER Assuming that Rub ink Ltd decides to go ahead with the project the total cost of producing ... View the full answer